KLCC Property hits 5-yr high on REIT rumours

KUALA LUMPUR (June 6): KLCC Property Bhd's stock (KLCCP) on Tuesday rallied to a five-year high of RM4.17, fuelled by speculation that it could soon inject its assets into a real estate investment trust (REIT).

The counter gained 2.82% or 11 sen to close at RM4 with 1.79 million shares traded on Tuesday. The last time KLCCP closed at RM4 was on May 4, 2007.

The usually sleepy counter has come alive in the past two weeks as speculation resurfaced of an impending REIT.  Its stock price rose 23% from RM3.25 on May 23 to RM4 on Tuesday.

Of the 10 research houses tracked by Bloomberg, four have called a "buy" on KLCCP and two have labelled the stock as an "outperformer". The average 12-month target price is RM3.86.

But despite the recent rally, KLCCP is still trading at a significant 42.44% discount to its net asset value of RM6.95 per share as at March 31.

In a recent note, Maybank IB Research said the recent uptrend in KLCCP's share price was highly unusual as the stock has been hovering at between RM3 and RM3.40.

"We believe this [injecting its property portfolio into a REIT] is just a matter of time. We will not be surprised if it materialises as it is a logical and necessary move to unlock KLCCP's deeply-discounted valuations," the bank-backed research house said in a note on Tuesday.

Maybank IB Research noted that KLCCP has been sidelined by investors after the listing of large retail REIT like Sunway REIT, CapitaMalls Malaysia Trust (CMMT) and Pavilion REIT.

This is because these REIT generally offer more attractive dividend yields and are supported by a favourable tax structure.

If it chooses to place its assets into a REIT, KLCCP could emerge as Malaysia's largest REIT, with total assets worth RM12 billion, making it more appealing to international investors, Maybank IB Research said.

Its investment properties include the iconic Petronas Twin Towers (51%), Menara Maxis (33%), Mandarin Oriental Hotel (75%) and Suria KLCC (60%). It wholly owns Menara 3 Petronas, Menara ExxonMobil and Kompleks Dayabumi.

Kenanga Research viewed that KLCCP is up for a re-rating if it concurrently places its assets into a REIT and converts its redeemable convertible unsecured loan stocks.

It said an upcoming earning catalyst for KLCCP is a long-term lease renewal for Menara Maxis next May.

Kenanga Research added that KLCCP stands to get back RM1.2 billion cash or 96 sen per fully diluted share if all its investment properties are injected into the REIT.

KLCCP's parent is national oil firm Petroliam Nasional Bhd with a 52.6% stake.

This story appeared in The Edge Financial Daily on June 6, 2012.